Court’s Decision
The Bombay High Court held that non-filing of a Statement of Affairs under Section 454 of the Companies Act, 1956 is a continuing offence, but emphasized that the prosecution must prove wilful default without reasonable excuse beyond reasonable doubt. Since the prosecution failed to discharge this burden and could not establish that the accused had the necessary records to file the statement, the accused were acquitted. The Court clarified that mere delay or filing in an imperfect form is insufficient without proof of wilful and deliberate non-compliance.
Facts
The company in liquidation was ordered to be wound up by the Court on 19 March 2009, appointing the Official Liquidator. As per Section 454, its directors were required to file a Statement of Affairs within 21 days (extendable up to three months). Notices were issued in 2009 and repeated court directions in 2010 and 2012 required compliance. The accused submitted certain balance sheets, vouchers, and bank statements but did not file a proper Statement of Affairs in the prescribed form. The Official Liquidator alleged wilful non-compliance and lodged a criminal complaint in 2013 under Section 454(5).
Issues
- Whether failure to file the Statement of Affairs was a continuing offence or barred by limitation.
- Whether filing incomplete or irregular documents amounted to wilful default without reasonable excuse.
- Whether affidavit evidence in a summons trial was admissible.
- Whether the prosecution discharged its initial burden of proof under Section 454(5).
Petitioner’s Arguments (Official Liquidator)
The Liquidator argued that directors had a statutory duty to file the Statement of Affairs and affidavit disclosing assets, liabilities, and records. Despite repeated court orders, they failed to do so and only filed defective documents after the complaint. It was urged that this constituted wilful default. The Liquidator relied on multiple precedents including Official Liquidator v. B.K. Bedi, Ashwani Suri v. Ganga Automobiles, State of Bihar v. Deokaran Nenshi, and Maya Rani Punj v. CIT, to argue that failure to file statutory documents is a continuing offence attracting penalty “for every day during which the default continues.”
Respondent’s Arguments (Accused Directors)
The accused contended that the complaint was barred by limitation, as the winding-up order was passed in March 2009 and even with extensions, default crystallized by July 2009, whereas the complaint was filed only in 2013. They argued that:
- They had already submitted available records and statements.
- The law required proof of wilful default without reasonable excuse, which was not established.
- The prosecution relied on affidavit evidence of an officer with no personal knowledge, contrary to CrPC requirements.
- Notices under Rule 124 of the Company Court Rules were not properly served, and hence liability could not be fixed.
- Accused No. 2 had resigned as director in 2005, long before the winding-up order, and thus bore no liability. Reliance was placed on R.S. Motors (P) Ltd. v. Jagjit Singh Sawhney, La-Bel Laminates v. Ramniklal Patel, and P.V.R.S. Manikumar v. OL, Madras HC to argue that the burden lay on the prosecution to prove absence of reasonable excuse..
Analysis of the Law
The Court analyzed Sections 454(1), (3), and (5) of the Companies Act, Section 472 of CrPC (continuing offences), and Sections 101, 105, and 106 of the Evidence Act. It held:
- Continuing offence: Each day of default creates a fresh liability until the Statement of Affairs is filed.
- Burden of proof: The prosecution must first show wilful default; only then does the burden shift to the accused.
- Evidence by affidavit: Though affidavits are not ordinarily permissible in summons trials, once accepted without timely objection, they cannot later be challenged.
- Notice under Rule 124: Not a condition precedent to liability under Section 454; directors are bound by statute to file the statement regardless.
Precedent Analysis
- State of Bihar v. Deokaran Nenshi (1972) – Defined continuing offence as one where liability persists until compliance. Applied here to hold Section 454 default as continuing.
- Maya Rani Punj v. CIT (1986) – Held that non-filing of returns is a continuing default; principle applied to corporate winding-up statements.
- Official Liquidator v. B.K. Bedi (1974) – Established that once notice and availability of records are proved, burden shifts to directors.
- P.V.R.S. Manikumar v. OL, Madras HC (2013) – Clarified that prosecution must establish absence of reasonable excuse before burden shifts.
- R.V.E. Venkatachala Gounder v. Arulmigu Temple (2003) – On objections to evidence, held that failure to object timely waives rights.
These judgments framed the contours of limitation, evidentiary admissibility, and burden of proof.
Court’s Reasoning
The Court found that:
- While the offence was continuing and not barred by limitation, the prosecution failed to prove wilful default.
- The evidence of the prosecution witness (PW-1) was inadequate, being based on office records without personal knowledge.
- Letters submitted by accused (Exhibit P-14) indicated that a Statement of Affairs was indeed submitted, though perhaps in defective form.
- The prosecution did not produce original records to prove that the documents were inadequate or non-compliant.
- Filing later statements (2014–2015) showed compliance, negating wilful default.
Thus, reasonable doubt existed and the accused could not be convicted.
Conclusion
The Bombay High Court acquitted the accused, holding that although the offence under Section 454 is a continuing one, the prosecution failed to establish wilful default beyond reasonable doubt. The Court reiterated that criminal liability cannot be imposed unless the initial burden is discharged by the complainant, and defective compliance does not ipso facto establish criminal guilt.
Implications
- Establishes that directors cannot escape liability merely after 3 months; obligation continues until compliance.
- But equally, prosecution must prove wilful and deliberate non-compliance, not mere delay or technical defects.
- Reinforces fair trial rights – affidavit evidence without objection stands, but courts must ensure strict proof in criminal cases.
- Important precedent for liquidators: must prove availability of records and wilful refusal before seeking conviction.
FAQs
1. Is failure to file a Statement of Affairs under Section 454 a continuing offence?
Yes. The Bombay High Court held it continues until the Statement is filed, attracting liability for each day of non-compliance.
2. Who bears the burden of proof in such prosecutions?
The prosecution must first prove wilful default without reasonable excuse. Only then does the burden shift to the accused to justify their conduct.
3. Can defective or late Statements of Affairs save directors from prosecution?
Defective or late filing may not be ideal, but unless wilful non-compliance is proved, criminal conviction cannot follow.